Fed too spooked to hike rates

3 min readOct. 28, 2015

Advertiser Disclosure

We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

How We Make Money.

The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for .

Editorial Integrity

Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.

How We Make Money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.

Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.

We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.

Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.

Share

Policymakers at the Federal Reserve have declined to raise interest rates yet again, to no one’s great surprise. Barring a massive showing of economic strength, October was never really seen as an option for policy change. Instead, this month’s meeting served as a place-setter for the final rate showdown of 2015, coming in December.

In a somewhat unusual move, Fed policymakers on the Federal Open Market Committee, or FOMC, released their usual carefully worded statement but this time spelled out what would need to happen for a rate hike to come at the December meeting.

Fed’s eyes are on jobs, China and the dollar

No rate hike means that the benchmark federal funds rate remains targeted at a record-low level between 0 and 25 basis points, or 0%-0.25%. Ultralow interest rates from the Fed keep a tight lid on CD and savings account rates while also pushing down the cost of consumer borrowing.

Interest rates have idled near 0 since December 2008, and the Fed would like to break the seal on a rate hike this year. That is, if the economic data cooperate.

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress — both realized and expected — toward its objectives of maximum employment and 2 percent inflation,” policymakers say in the statement released following the meeting.

The Fed’s latest vote for inaction comes amid weaker U.S. hiring, economic trouble signs from China and challenges posed by the strong U.S. dollar.

“The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments,” the statement says.

Murkiness in the economic picture

The fact is that the economic numbers are somewhat open to interpretation. For instance, the last employment report was considered a setback.

“Recent job growth numbers in the U.S. have been weaker than expected. The unemployment rate has fallen over recent years, but much of that rate decline is due to discouraged workers, those no longer looking for work,” says Robert R. Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pennsylvania.

The central bank didn’t seem to like the look of the recent jobs report either. “The pace of job gains slowed and the unemployment rate held steady,” the statement notes.

But the jobs market may not be down for the count.

“The numbers that came out in September were disappointing, but the report dealt with job numbers for September and August. The jobs report is notoriously unreliable in the summer, and other job market indicators show no evidence of softening,” says Bernard Baumohl, chief global economist at The Economic Outlook Group.

Inflation, the second pillar of the Federal Reserve’s mandate, has been increasing only slightly. An inflation reading closely watched by the Fed was up 1.3% year over year in August, a long way from the Fed’s 2% goal. September’s reading comes out at the end of this week.

So how about a December rate hike?

Federal funds rate futures offer an indication of when market participants believe the central bank will raise interest rates. The probability of a rate hike in December was only around 30% going into this week’s meeting but jumped to close to 50% following the Fed’s announcement, according to the CME Group. The futures market says the likelihood of a rate increase next year is much higher.

But Baumohl insists: “The odds are still high that the Fed will finally begin to lift rates before the year is out.”

Johnson isn’t convinced. “I don’t believe that the Fed is in a position to raise rates in the near term and that the likely scenario is that they will not move on rates until March or April of 2016,” he says.

Federal Reserve Board Chair Janet Yellen will testify before Congress on Dec. 3. Her testimony could clarify the central bank’s view of the economy at that point. The final meeting of the year will wrap up on Dec. 16, and Yellen is scheduled to hold a news conference afterward.

About the author

Sheyna Steiner is an investing analyst/writer for Bankrate.com Before joining Bankrate, Sheyna Steiner worked as a customer service representative in a brokerage, an assistant in an actuarial office, a writer's assistant and as an inattentive receptionist on several separate occasions.
She joined Bankrate in April 2006 as an editorial assistant. After two years she was promoted to staff writer, working primarily on investing and retirement beats. In addition to writing articles, Sheyna blogs about investing and CDs.
Her favorite topics include socially responsible investing and anything about consumers being ripped off by the man -- and how they can fight back.
In her role as investing analyst/writer, Sheyna is known for making complicated investment and personal finance topics accessible for everyone. She has been interviewed by The Palm Beach Post, Fox Business and CNN.
In 2011, Sheyna was part of a team that won a prestigious journalism award -- a Best in Business award from the Society of the American Business Editors and Writers for coverage of the Dodd-Frank financial reform law. In 2007, she was part of a team that won the Sigma Delta Chi Award from the Society of Professional Journalists for the coverage of the Federal Reserve Open Market Committee's cut to short-term interest rates in September 2007 and the impact it had on consumers.
Sheyna is a graduate of Sarah Lawrence College in Bronxville, N.Y.